Australia must introduce a price on carbon or face shrinking power supplies, waning industry investment and spiralling electricity costs, Prime Minister Julia Gillard said Wednesday.

Arguing that climate change could have a potentially devastating impact on the economy, Gillard said Australia's heavy reliance on coal had to be addressed while business needed certainty about future costs.

"Continued lack of certainty will see vital investment decisions delayed and money ploughed into costly and wasteful stop-gap options," Gillard wrote in a commentary published in The Sydney Morning Herald.

Gillard said while the coal industry was "not about to vanish", Australians wanted action on climate change and that would mean cutting the carbon pollution created by the burning of fossil fuels blamed for global warming.

Setting a carbon price would open the door to a new era of investment and innovation, potentially creating thousands of jobs, she said.

"The alternative is very stark. If we continue to do nothing, we will pay a heavy cost -- electricity prices will spiral, big investment decisions will remain on hold, our power supplies will begin to run short, and clean energy jobs will be lost offshore," she said.

With extensive coal reserves, Australia has long relied on the fuel to fire its power stations, using coal to meet more than 80 percent of its electricity needs and making Australia the world's biggest per capita polluter.

Gillard, whose fragile coalition government includes the environment-focused Greens party, has established a multi-party committee on climate change to advise on setting a carbon price.

But the concept is shunned by the conservative opposition, which repeatedly thwarted her predecessor Kevin Rudd's attempts to pass a bill to introduce a carbon emissions trading scheme through parliament.

Some quarters of industry in Australia, a major coal exporter, have backed the idea of a carbon levy, with miner BHP Billiton calling on Australia to lead the way by taxing carbon emissions blamed for global warming.